Real wage crisis: Why higher pays don't allow you to buy more

Illustration: TBS

For Humayun Kabir, the arithmetic of running a household no longer adds up. He supports a seven-member family, and what once felt manageable before 2022 has steadily slipped out of reach. As the prices of food and everyday essentials climbed, his monthly household expenses almost doubled, while income rose only marginally. 

The pressure intensified further when medical costs entered the equation: both his mother and brother suffer from heart and kidney ailments, requiring medicines that cost Tk12,000–15,000 every month. Over the past four years, he says, his family has lived under constant financial strain, juggling rising costs with stagnant earnings.

The squeeze looks different, but feels just as relentless, for Subail bin Alam, a corporate executive. His paycheque has not collapsed, yet each month ends with the same unease as his credit card bill arrives a little higher than the last. Clearing those dues eats into his savings and forces quiet sacrifices — fewer clothes bought, family outings postponed, everyday spending pared back. 

Without any single dramatic cut, leisure has gradually vanished from his life. "Month after month, the bill keeps rising," he says, describing how dipping into savings has become routine and financial stress an unremarkable part of daily life.

Jesmin Apa, who runs a tea stall in Eskaton, said, "Before, we could at least eat regularly with what we earned from this shop. Now, we can barely manage one meal a day. Rice that cost Tk60 per kg is now worth Tk80-85. Prices of onions, potatoes, everything has gone up. Even my children's notebooks cost more. My income hasn't gone up. Tell me, where will the money come from?" 

Together, their stories capture a reality confronting millions of Bangladeshis: incomes that appear stable on paper, but steadily lose ground in the face of a higher cost of living.

For much of the past decade, inflation in Bangladesh was a background concern rather than a defining economic anxiety. For seven to eight years before 2022, consumer price inflation hovered around 5%, allowing wages, savings and consumption to move in a relatively predictable rhythm. 

Since February 2022, Bangladesh has experienced a prolonged period in which nominal wage growth has failed to keep pace with inflation. Over roughly 46 consecutive months, workers have earned more in taka terms, but less in real purchasing power. 

This erosion of real wages has emerged as one of the most consequential, yet least visible, crises facing the economy — one that disproportionately affects the urban lower-middle class and the poor.

When prices ran ahead of pay

Inflation began rising gradually from February 2022 and accelerated sharply after August that year. By July 2024, overall inflation peaked at 11.66%, while food inflation hit an even more punishing 14.10%. 

The labour market is currently quite tight, and as a result, the pace of wage increase has slowed. That is one side of the story. On the other hand, although inflation is coming down, it still remains higher than the rate of wage growth. This means purchasing power continues to erode. The adverse impact is particularly severe for people living below the poverty line, those in extreme poverty, and households that are at risk of slipping into poverty.

Professor Mustafizur Rahman, Distinguished Fellow, CPD

Wages, however, lagged far behind. Even as inflation has eased since then — falling to 8.29% overall and 7.36% for food in November 2025 — the damage to household purchasing power has already been done.

When prices rise faster than earnings, households are forced to adjust not through one-off belt-tightening, but through structural changes in how they live: cutting protein intake, delaying healthcare, reducing education spending, and leaning more heavily on debt.

Why easing inflation does not feel like relief

On paper, the inflation trajectory looks encouraging. The rate is coming down, and policymakers point to tight monetary policy — particularly a policy rate fixed at 10% for more than a year—as evidence of discipline. The Bangladesh Bank governor has indicated that inflation could fall to around 7% or below by June 2026.

Yet for most households, there is little sense of relief. The reason lies in a basic but often misunderstood distinction: lower inflation does not mean lower prices. It only means prices are rising more slowly than before.

After the sharp price jumps of 2022 and 2023, the price level reset at a much higher base. Rice, edible oil, transport fares, rent, school fees and healthcare costs have not come down meaningfully. Consumers therefore experience inflation easing as an abstract statistical improvement rather than a tangible change in their daily lives.

While food inflation has eased more noticeably, non-food inflation remains stubbornly high — 9.08% in November. This matters particularly for the urban population, whose expenditure basket is heavier on rent, transport, utilities, education and healthcare.

Rent adjustments, once made, are rarely reversed. Transport fares have stayed elevated long after fuel prices stabilised. School fees and coaching costs have ratcheted up. These are not items households can easily substitute or cut without long-term consequences.

As a result, even when food inflation slows, the lived experience of inflation remains acute. The statistical relief does not translate into psychological or financial relief.

Why is this persisting? 

Professor Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), said, "The labour market is currently quite tight, and as a result, the pace of wage increase has slowed. That is one side of the story. On the other hand, although inflation is coming down, it still remains higher than the rate of wage growth. This means purchasing power continues to erode. The adverse impact is particularly severe for people living below the poverty line, those in extreme poverty, and households that are at risk of slipping into poverty." 

Stabilising the exchange rate has helped to reduce imported inflation to some extent. 

However, in the domestic market, investment has remained weak due to tight monetary policy. Taken together, this has slowed investment as well as the supply-side response. As a result, inflation, while easing, remains relatively high. At the same time, weaknesses in market management have become apparent.

Professor Mustafiz added, "From the import stage to the retail level, and from domestic producers to retailers, there is a long chain of intermediaries. Effective oversight of this space has been lacking. Those responsible for monitoring and regulation have not been able to act decisively."

There are also significant data gaps — on supply and demand, production levels, import timing and volumes, optimal stock levels, and when and how much stock should be released. Market management, along with continuous monitoring of the behaviour of intermediaries, remains weak. 

Whether in the case of fuel dealers or major suppliers of other essential goods, structural problems persist. Unfortunately, the kind of rigorous oversight required to control these distortions is largely absent.

"The most fundamental issue, however, remains investment and its link to supply. As long as investment does not pick up meaningfully, these problems are likely to persist," he said. 

Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, "If we look for the reasons, one stands out clearly in manufacturing. Investment has expanded, but much of it has been labour-displacing. Expansion is taking place, but it is not creating sufficient new jobs; rather, automation and technology are replacing labour. Government policies encouraging mechanisation and automation appear to have intensified in recent years."

He added, "As a result, while labour demand has not fallen to zero, it has not grown fast enough to keep pace with the rising supply of workers. This mismatch explains why real wages continue to decline." 

The days ahead

There is cautious optimism among policymakers that once inflation falls to around 7% or below, wage growth will finally overtake inflation, restoring positive real wage growth. At that point, the policy rate is expected to be reduced, boosting private sector credit growth and investment.

But this transition carries risks. Lower policy rates will expand money supply. If not carefully managed, this could reignite inflation, once again pushing it above wage growth. At the same time, the government will need to balance multiple objectives: stimulating investment and employment, keeping the exchange rate broadly stable, sustaining remittance inflows, and avoiding a return to large balance-of-payments deficits.

Professor Mustafiz said, "There is some hope that growing political predictability may improve investor sentiment in the near future. But it is also important to recognise that after prolonged inflation, the overall price level has shifted permanently upwards. Even if the inflation rate falls, prices do not come down. In this context, without a strong revival in investment, relying on supply-side responses alone to tackle inflation will be extremely difficult. That is why the importance of social protection programmes has increased significantly. Strengthening safety nets — from family cards to other social safety programmes — has become far more urgent." 

He added, "Supply-side responses driven by investment will take time to materialise. Elections, followed by policy clarity, mean there will inevitably be a lag. Still, I am hopeful that once the election is over, investment momentum will return. When that happens, the supply-side response should also improve gradually."